The PI 3-phosphatase PTEN (phosphatase and tensin homologue deleted on chromosome 10), one of the most important tumor suppressors, must associate with the plasma membrane to maintain appropriate steady-state levels of phosphatidylinositol 3,4,5-triphosphate. Yet the mechanism of membrane binding has received little attention and the key determinants that regulate localization, a phosphatidylinositol 4,5-bisphosphate (PIP2) binding motif and a cluster of phosphorylated C-terminal residues, were not included in the crystal structure. We report that membrane binding requires PIP2 and show that phosphorylation regulates an intramolecular interaction. A truncated version of the enzyme, PTEN1-351, bound strongly to the membrane, an effect that was reversed by co-expression of the remainder of the molecule, PTEN352-403. The separate fragments associated in vitro, an interaction dependent on phosphorylation of the C-terminal cluster, a portion of the PIP2 binding motif, integrity of the phosphatase domain, and the CBR3 loop. Our investigation provides direct evidence for a model in which PTEN switches between open and closed states and phosphorylation favors the closed conformation, thereby regulating localization and function. Small molecules targeting these interactions could potentially serve as therapeutic agents in antagonizing Ras or PI3K-driven tumors. The study also stresses the importance of determining the structure of the native enzyme.iRAP ͉ phosphatase ͉ PI3K ͉ PIP2 ͉ PIP3 P TEN (phosphatase and tensin homologue deleted on chromosome 10) is a lipid phosphatase that dephosphorylates phosphatidylinositol-3,4,5-triphosphate (PIP 3 ) and opposes PI3K signaling (1). This important tumor suppressor is frequently mutated in endometrium, prostate, and brain cancer, and alterations of PTEN activity leads to Cowden and Bannayan-Zonana syndromes in which patients develop benign hamartomas (2-4). Mice homozygous for a deletion of PTEN die in early embryogenesis whereas heterozygotes have a propensity to develop widespread neoplasms (5). Prostate-directed conditional deletions of PTEN result in metastatic prostate cancer (6-8). Neural and astrocyte-specific deletions lead to greatly enlarged brain size and abnormalities in astrocytes and neurons (9). Cultured mammalian cells lacking PTEN proliferate faster, resist apoptosis, and migrate aberrantly (10-12). Dictyostelium discoideum cells lacking PTEN have elevated PIP 3 and are severely defective in chemotaxis (13).Regulation of PTEN activity, localization, and function are controlled by a variety of mechanisms. NOTCH1, by acting through transcription factors CBF-1 and MYC or HES-1, respectively, has been reported to either increase or decrease PTEN expression (14-16). Another level of regulation is post-translational modification. Acetylation by p300/CBP-associated factor blocks PTEN activity (17). PTEN catalytic activity is negatively regulated by reactive oxygen species under oxidative stress (18-20) by disulfide linkage of catalytic cysteine 124 with cysteine 71 (18...